Sovereign guarantee guidelines are up for a recast to disperse government liabilities stemming from ballooning foreign loans taken by state-owned enterprises (SoEs), at a time when overall public debts are swelling, sources say.
Also, the government move is meant for streamlining the sovereign-guarantee process and further strengthening debt-repayment capacity of the enterprises, officials said.
Sovereign guarantees against foreign loans of the SoEs are rising every year. The cumulative outstanding sovereign guarantees against their foreign debts in the outgoing fiscal 2023-24 amounted to Tk 986 billion, up from Tk 926.02 billion in the past financial year, according to finance ministry count.
The volume of sovereign guarantees is expected to rise in the years ahead as many of these state enterprises plan for expansion, officials said.
Biman Bangladesh Airlines is planning to buy some more aircraft very soon and the government will have to provide sovereign guarantee once again, a Finance Division official told the FE as an example of upturn in potential state liabilities.
According to officials concerned the government provides sovereign guarantees against loan negotiated by various state-owned financial and non-financial enterprises for implementing public policies and programmes.
These guarantees were primarily issued to entities operating in the commercial aviation sector, power sector, fertiliser-production plants, and public-commodity sector, according to a finance ministry document.
"If the contracting organisations fail to pay their loan in time, the guarantees may be invoked and the liabilities for payment are passed on to government and this shall have future fiscal implications," the document reads.
Sovereign loan guarantees expose the government to potential financial losses if SoEs default on their debts. This can happen if the SoEs become insolvent or their projects underperform.
Even without defaults, there are implicit risks associated with SoEs. "The government might need to inject additional capital (recapitalisation) to keep these enterprises afloat," says the ministry in its documentation as regards state's financial obligations.
Moreover, the unrealised returns on investment expectation--which means the SoEs' failure to generate the expected returns--will further strain public finances.
The Ministry of Finance in its Medium-term Macroeconomic Policy Statement has recommended updating the Sovereign Guarantee Guidelines 2012 to mitigate contingent or accrued liability risk and to ensure sustainable government guarantees.
It also suggested creation of sinking funds by the SoEs to provide guarantees--meaning that they will have to set aside resources for eventual repayment, and reducing long-term liabilities.
Rreal-time monitoring of SoE-guaranteed debts by using digital systems was also suggested which will help early identification and intervention in case of potential problems.
The finance ministry also would like aligning SoEs' accounting and financial management practices with international standards which will improve transparency and facilitate better risk assessment.
Prudent asset management of the SoEs is another essential requirement in the ministry's view as it will help these corporations become more productive. The enterprises are endowed with relatively large amounts of assets.
Moreover, the finance ministry suggests some commodities can be directly passed through on to the end-users as guardrails to protect the SoEs from global price fluctuations.
In the case of petroleum products, the government has already adopted this policy in line with recommendations made by the International Monetary Fund (IMF) in its lending package meant for propping up Bangladesh's falling foreign-exchange reserves.
Another senior official at the ministry told the FE correspondent that amendment of the guidelines would "help lessen government liability as the SoEs themselves will set aside some money every year which can be used for repayment of foreign debts".
Meanwhile, overall foreign debts of the country crossed US$100 billion last March, creating huge repayment liabilities.
The government predicts that 49 SoEs may incur a doubly higher loss of Tk 280.47 billion in the next fiscal year while the forecast of loss for the current fiscal year is Tk 149.62 billion.
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